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Visa Inc.’s combined U.S. credit and debit card purchase volume grew nearly 10% in the quarter ending June 30, but the payment network’s net income plunged 76% mainly because of its costs to acquire Visa Europe. PayPal Holdings Inc., meanwhile, saw its volumes and bottom line increase in the second quarter, but its per-transaction profitability slipped again.
The financial and operating numbers both companies reported late Thursday were mostly overshadowed by a sweeping agreement they announced. With it, Visa expects will see more transactions from the online and mobile-payments leader funded with Visa cards, in return for PayPal getting financial incentives and access to the physical point of sale through Visa’s tokenization service.
Visa’s U.S. credit card purchase volume grew 10.9% in the third quarter of fiscal 2016 to $376 billion from $339 billion a year earlier. Debit purchase volume hit $373 billion, up 8.3% from $344 billion in fiscal 2015’s third quarter. Total U.S. payment transactions grew 11% to 14.7 billion from the prior year quarter’s 13.3 billion.
Operating revenues inched up 3.2% to $3.63 billion, but net income fell nearly 76% to $412 million versus $1.7 billion a year earlier. Visa chief executive Charles Scharf attributed the decline to non-recurring factors, especially the acquisition of Visa Europe that closed June 21.
Visa Europe had $475 billion in payment volume in the third quarter, which means the acquisition will increase Visa Inc.’s volume by about 35%. Visa Inc.’s worldwide payment volume was $1.35 trillion in the quarter, up 10.2% year over year on a constant-currency basis.
Meanwhile, San Jose, Calif.-based PayPal said it processed 1.4 billion transactions in the second quarter, up 25% from a year earlier, and that its active customer accounts increased 11% to 188 million. Total payment volume jumped 28% (29% accounting for currency fluctuations) to $86 billion. Mobile payments now account for 28% of PayPal’s volume, up from 26% a year ago.
Some 14.5 million merchants now accept PayPal. Two million of those use PayPal’s One Touch authentication service and more than 25 million consumers have opted in to use it. During a conference call with analysts, chief executive Dan Schulman called One Touch “the most rapidly adopted product in PayPal’s history.”
Venmo, PayPal’s person-to-person payments service, continued to boom, with the transaction count up 141% year over year to nearly 4 billion. Meanwhile, PayPal’s Braintree e-commerce unit had 309 million cards on file, up 101%.
PayPal’s annual transaction rate per active account grew 13% to 29 versus 26 a year ago. That’s a metric Schulman has identified for continued improvement.
“We need to further deepen customer engagement to widen the distance from our competitors,” he said.
One number headed the other way is the so-called take rate, a measure of how much revenue PayPal gets as a percentage of payment volume on each transaction. The take rate has been trending down in recent quarters, and most recently it declined 22 basis points (0.22%) to 2.69% because of the growth of the lower-margin P2P business, a shift to larger merchants that get lower pricing, and Braintree’s growth, chief financial officer John Rainey reported. Similarly, PayPal’s transaction margin, or profit after operating and fraud expenses, fell to 59.8% from 63.8% in 2015’s second quarter.
Rainey said PayPal is working on cost controls to improve profitability. “We continue to be focused on strong expense discipline,” he said.
In all, PayPal reported net income of $323 million, up 6% from $305 million a year earlier, on net revenues of $2.65 billion, a 15% increase from $2.30 billion.
